Tuesday, April 19, 2011

The world crisis as it develops

David Seaton's News Links

The other day we went shopping at a huge hypermarket of the French, "Carrefour" chain on the outskirts of Madrid. We hadn't been there for about a year and we were struck by how the quality of the store-brand, discount merchandise had deteriorated in that time. Not that long ago it was possible to buy quite nice things at discount: bluejeans, appliances, etc, for very little money. The prices have held, but what is for sale is shoddy junk. This is a trend that I am noticing in all over the discount stores: hypermarkets, supermarkets, etc.

Obviously to avoid raising prices in the middle of a recession, the merchants are looking for ever more cut rate suppliers... this appears to be the last "firewall" against inflation and when it is broken it will be difficult for the great majority to continue to consume, especially since credit has tightened and jobs continue to be offshored; again, an attempt to buck the inflationary trend.

If the consumers in the wealthy countries can no longer afford to consume, many factories in the third world will be closed and their workers laid off, which will lead to turbulence in those countries, where workers and their families are much more exposed to the rising cost of basic food items... and so it goes.

There follow a series of quotes to fill in a possible profile of what awaits us in the coming months:

“The ultimate reason for all real crises always remains the poverty and restricted consumption of the masses as opposed to the drive of capitalist production to develop the productive forces as though only the absolute consuming power of society constituted their limit.” [Marx - Capital, Volume III, Chapter 30]

(...) High inflation endangers China’s status as the low-cost workshop for the world.(...) Food prices are soaring, and the government said on Friday that the consumer price index in March had risen 5.4 percent, its sharpest increase in nearly three years.(...) Beijing and many municipal governments have required employers to raise wages. The government has raised minimum wages in the hope of reducing the big income gap between the rich and the poor, and the urban and rural.(...) “China is moving into a new era, a new norm,” said Dong Tao, an economist at Credit Suisse in Hong Kong. (...) In some cases, retailers are bidding for goods at prices the exporters consider too low.“I hear that many Chinese exporters are rejecting orders from Wal-Mart and other Western retailers,” Mr. Tao said. “I’ve been covering the Chinese economy for a long time, and I’ve never heard that before.”(emphasis mine) New York Times

"The hedge funds are now active in commodities and are playing the futures contracts, where upwards of 30 million tons of soybeans for future delivery are contracted for every day. They are also buying the companies that stock grains.(...) Futures purchases of agricultural commodities classically have been the means by which a limited number of traders stabilized future commodity prices and enabled farmers to finance themselves through future sales. Speculative purchases have no other purpose than to make money for the speculators, who hold their contracts to drive up current prices with the intention not of selling the commodities on the real future market, but of unloading their holdings onto an artificially inflated market, at the expense of the ultimate consumer. Even the general public can now play the speculative game; most banks offer investment funds specializing in metals, oil, and more recently, food products. It is astonishing in the present situation that the international financial institutions and government regulators have done little to control or banish this parasitical and anti-social practice. The myth of the benevolent and ultimately impartial market prevails against all contrary evidence." William Pfaff

"The social theories of Karl Marx were long ago discarded as of little value, even to revolutionaries. But he did warn that capitalism had a tendency to generate its own crises. Indeed, the spread of capitalism, and its accelerated industrialization and wealth-creation, may have fomented the food-inflation crisis — by dramatically accelerating competition for scarce resources." Tony Karon - Time

It has always seemed to me that Marx's predictions were foiled by availability of ever cheaper and more abundant consumer goods and ever cheaper and more abundant credit with which to buy them, despite stagnant or falling wages. This formula seems to be in crisis now. It will be interesting to see how we wiggle out of this one. DS